What is Ethereum? The Platform for Smart Contracts and Decentralized Applications
Ethereum (ETH), founded by Vitalik Buterin in 2015, is the world’s first public blockchain supporting smart contracts. Ethereum enables developers to build decentralized applications (dApps), DeFi protocols, NFTs, and more, driving explosive growth in the Web3 ecosystem. Ether (ETH) is the native token of the Ethereum network.
How Does Ethereum Work? EVM, Gas Fees, and Consensus
Ethereum relies on distributed nodes, with every transaction requiring ETH as a “gas fee.” Smart contracts automatically execute conditional agreements, widely used in finance, gaming, supply chains, and more. Initially using PoW, Ethereum completed “The Merge” upgrade in 2022, transitioning fully to Proof of Stake (PoS), reducing energy consumption by over 99% and enhancing sustainability and security.
Supply Mechanism and EIP-1559
Ethereum has no fixed supply cap, but since EIP-1559, a portion of ETH is burned with each transaction, helping reduce inflationary pressure. ETH is essential for paying gas fees, staking rewards, and governance participation, with demand growing alongside ecosystem expansion.
Ecosystem and Use Cases
Ethereum’s ERC-20 and ERC-721 standards fueled the rise of DeFi and NFTs, giving birth to projects like Uniswap, Aave, and OpenSea. The Ethereum Virtual Machine (EVM) provides a flexible programming environment, promoting cross-chain interoperability and Layer 2 scaling solutions (e.g., Rollups, Sharding).
Reasons and Risks for Investing in Ethereum
Web3 and Smart Contract Infrastructure: ETH is the core asset for DeFi, NFT, DAO, and other innovative applications.
Technical Upgrades and Ecosystem Growth: PoS transition and EIP-1559 enhance network performance and value capture.
High Liquidity and Mainstream Acceptance: ETH is traded globally, second only to Bitcoin in market cap.
Risks: Network congestion, high gas fees, competition from emerging blockchains (e.g., Solana, Avalanche), and regulatory uncertainty.
Skeptical Views and Alternative Perspectives
While Ethereum’s ecosystem is vast, scalability and fee issues persist. Failure to address these could see it overtaken by newer, high-performance blockchains. Investors should monitor technological progress and ecosystem changes.